Greetings, and welcome to the Remark Holdings Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Vice President of Investor Relations, Fay Tian. Thank you, Fay. You may begin..

Thank you, Alicia. Good afternoon, everyone, and welcome to Remark Holdings' fiscal year 2022 financial results conference call. I am Fay Tian, Vice President of Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark's Chairman and Chief Executive Officer; and Mr. Todd Brown, Vice President of Finance.

In just a moment, Mr. Tao will provide an update on our businesses and Mr. Brown will recap our fiscal year 2022 financial results. Following these remarks, we will open the call to questions. But before I turn the call over to Mr.

Tao, I would like to take this opportunity to remind you that some of the statements made today may be forward-looking statements. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements reflect Remark Holdings’ current views, and Remark Holdings expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof.

This disclaimer is only a summary of Remark Holdings’ statutory forward-looking statements disclaimer, which is included in full in its filings with the SEC. I will now turn the call over to Remark's Chairman and Chief Executive Officer, Mr. Tao, so he can provide additional information on Remark's businesses and recent developments.

Please go ahead, Shing?.

Thank you, Fay. Thank you for taking the time to listen to our quarter four update as we have much to update on. In Q4, we've continued to execute on our plan to continue to build a foundation to scale our Remark AI platform globally.

The legendary investor, Warren Buffett, once said, “someone sitting in the shade today, because someone planted a tree a long time ago” We are that tree as it stands today and will continue to watch it grow and reap all the benefits from the foundation, we have put in place over the last eight years.

Simply put 2022 was a year where we were able to successfully diversify our businesses to other parts of the world. Most specifically the U.S. and United Kingdom. In 2023, you will not only see the announcements of major wins in both the U.S.

and the U.K., but also our expansion into the Middle East and Latin America, and to achieve the goal of profitability by the end of 2023. With all the excitement surrounding Open AI ChatGPT launch at the end of last year, which has sparked a fervor of interest in AI companies.

We strongly believe we are only just scratching the surface for what AI can do for you, me, and the rest of the world. We have already launched our own ChatGPT service to augment our offerings to our customers.

For example, as you know, we already have a growing business dealing with construction companies and using our AI to help manage their workforce and the daily intricacies of project management. By now adding Remark AI's generated AI capabilities to our product offerings, we will be able to offer AI-based design services as well.

In our last quarter call, we were accurate in our prediction that China would be loosening their COVID rules by the next time we spoke. We are excited to see all businesses rushing to bring their businesses back to pre-pandemic growth numbers, and we certainly expect to be a beneficiary of this.

In Q4 2022, here are some updates on previously announced wins. One, we deployed our smart campus products to now over a 100 schools, which makes our total deployment over 600 schools and serving and protecting 1.2 million students daily.

Two, we finished 11 smart construction projects in Q4 ‘22, which brings us a total of 97 construction project deployments in ‘22. We are anticipating another 100 construction projects in ‘23 as the COVID pandemic has ended now.

Each initial construction project generates approximately $100,000 in revenue and the pace of Remarks installations are expected to grow as China opens up. Three, our previously announced wins using Remark AI's retail platform for both China Mobile and Bank of China's retail branches are now set to resume as the stores are now back open.

And four, with China Mobile smart communities, we've now begun to resume deployment and we anticipate to be installed in a 100 of these communities by the end of 2023. As I mentioned in the past, Remark AI is able to differentiate ourselves from competitors. Because, one, we offer a platform not a point solution.

No customer wants to handle 15 different vendors. Two, our platform has tried and tested, no customer wants to be the guinea pig.

For example, in the fourth quarter Remark AI was able to demonstrate the uniqueness of our large crowd scale people counting solution, which differentiates from individualized people counting that is limited in the quantity measure.

This tool was effectively applied during the 2022 New Year's Eve celebrations in both the densely populated cities of Edinburgh Scotland and Seoul, Korea, giving us the credibility in working globally with large metropolitan cities.

Due to this live and real world success, we are now close to quickly expanding this product to governments around the world. And three, the quote secret sauce of our AI platform is the ability to train our algorithms 3 times as fast as our competitors, while only using a limited amount of datasets.

This means we are able to our customer needs quickly and provide a new solution if not readily available in the market. The well-known thing, great things happen when preparation meets opportunity applies for Remark AI.

Since we began building our platform almost eight years ago, we have now created a system which can provide the tools for businesses to run more efficiently and effectively and to provide an immediate ROI. And coming out of COVID, we are seeing unprecedented need for our AI platform in many different industries.

Due to the strength of our core technology, we are unable to compete to win the business and in addition, create solutions that have never been introduced before in the industry.

For example, as I've mentioned in the past, we have introduced the first global AI-based aviation platform, where both airline and airport operators can use to run their business in a much more effective manner.

For example, in the past, it took one hour with a crew of 10 people to check the plane engine blades for wear and tear like burnt spots that can affect the plane's safety and energy usage. With Remark AI, the airline operator now needs only 10 minutes and one person to do the same thing.

Or traditionally, when a plane lands, the airport operator has problems tracking all the different vendors and how much time it takes each one to service the plane. Again, with Remark AI, we are able to help them keep track in the airplane's honest -- airplane vendor's honest.

And finally, when the airplane engine goes through general inspection, could be with Rolls Royce or Whitney Pratt there always is a difficulty to keep track of the 500-plus distinctive parts that make up the engine.

Using our computer vision technologies, we are able to make sure every nut and bolts and tags are properly installed and secured and had no missing pieces before the engine is installed to the airplane. Our solutions had never been offered before, until Remark AI has introduced it.

Remark is pursuing recurring revenue streams that leverage our AI powered solutions for the public and private sectors that include any large gatherings of people that require safety; such as sporting events, and tiering locations, as well as the education, public safety, retail and transportation markets.

We focus on large total addressable markets that can scale quickly and benefit from our AI powered software to improve our customers’ operations and generating immediate return on investment from increased safety, reducing incidents, as well as cost savings from efficient teamwork.

We are solutions provider that sells the well-funded programs, which already have the budgets pre-allocated. As part of their security, and infrastructure investments, thereby providing more visibility than a cyclical, economically dependent business.

We actively partner with existing sales and solutions partners, whose sales of a $100 million plus will accelerate with our product capabilities and have the current distribution and customer relationships in the markets we are pursuing.

An example of this partnership is with Netwatch, a security company that's been built -- that has built a proactive company to provide 24/7 real time security monitoring, augmenting an organization's existing security force.

When a trespasser enters a property illegally, Netwatch's monitoring center broadcast a real time warning to the trespasser, while notifying the appropriate security personnel. Like Remark, Netwatch has successfully deployed internationally is now seeking to grow that U.S. business.

And they were looking for an effective AI power solution to enhance their product offerings, which led them to Remark.

One of the first markets we looked at in the public sector was the Yellow School Bus market, helping operators with safety and security solutions by counting the students on and off the bus to make sure they arrive at their destination safely.

Remark AI power solutions now enables Netwatch to offer bus occupancy account, real time rules based notification for parents and teachers via SMS, email, or GPS location tracking with map views of all active bus drivers, student attendance via a digital register roll call. And batch uploads of student information for the student database.

To provide some numerical perspective, there are currently 480,000 school buses in operation in the U.S. We are conducting or currently conducting a pilot test with one of the largest school buses with a fleet of 55,000 buses. The typical school bus requires three video streams, front, middle, and back.

And we charge based upon a suggested recurring subscription of $50 per month, which represents a total addressable market size of up to $860 million of recurring annual revenue and $99 million of recurring annual revenue, if we are only to include the fleet size of our current pilot customer.

Public transportation is another opportunity as there are additional 500,000 buses that serve the commercial sector. We are in active negotiations to provide similar services that also include bus driver and passenger safety, a vital concern in restoring the confidence of customers by providing accountability and peace of mind.

Public and venue safety, any large gathering of people requires a security solution that is dependable. Highly accurate and most importantly helps provide safety. Our security solutions are currently being marketed and deployed in places like airports, arenas, parks, schools, stadiums.

Through our strategic integration partners, like Minuteman Security Technologies, and established video management systems such as Genentech, and Milestone. We are providing AI powered solutions that help with people counting, smoke and fire detection, intrusion detection, and weapons detection through our Century and Mobile platform.

The State of Nevada and Clark County has granted over $700 million to be spent upgrading school security as part of the Biden Infrastructure bill, and we're excited to be actively be a participant of those programs.

To the current pilot test, we are running along with our partner's Milestone Systems, which we expect to start turning into revenue for the second-half of 2023. And going into the Health Club space, this is another market that we are targeting. Health Clubs require accountability and safety solutions for customers in real time.

Currently, Health Clubs experience a potential liability whenever someone falls or gets injured while they're on the premises. For Health Clubs with pools, a lifeguard is always required to be on duty to reduce the risk of any accidental drownings.

Remark AI's powered solution provides an additional layer of protection by actively monitoring for falls and abnormal activities, including potential drowning, identifying and reporting those events on a real time basis in order to help save lives. This is critical spending, not discretionary spending.

We are focused on the mutual goals of positive cash flow generation and growth. Our business model is built upon annual multi-year recurring subscription revenue that provides a total turnkey AI powered platform for our customers and partners.

Just these three opportunities mentioned below, alone, potentially represent over a $100 million of recurring domestic revenue, capture over the next 18-months starting July 1st. There are many opportunities that we are at [Indiscernible] upon completion that we did not mention.

This earnings call was meant to give you a case of the numerous and diverse businesses that we are in the prime position to win and it only emphasizes the incredible opportunity of artificial intelligence and how well Remark is positioned to benefit from this.

We always welcome serious current and potential shareholders to reach out to understand the full picture of our opportunities and why we are so bullish over the next 18-months. With that, I pass this over to Todd Brown..

Thank you, Shing. As we have talked about in the past 2022 has been a challenging year for our teams, especially in China as we -- alright my apologies for the interruption. So 2022 has been a challenging year for our teams. However, the good news is that despite the COVID lockdowns that have caused us to have these problems with our operations.

The good news is that China has ended at zero COVID policy, and we are working to resume our deployment that China mobile retail branches, Bank of China's consumer banking branches, which have been closed since the visitors -- closed two visitors since the onset of COVID and at construction sites and school campuses.

Despite the difficulties, the team was able to complete a number of projects, including construction projects and smart campus deployment at schools that prevented more of a decline of revenue during ‘22, when compared to ‘21. Revenue for 2022 totaled $11.7 million, reflecting a 27% decrease from the $16 million during ‘21.

First of all, we'll address the U.S. revenue, which declined primarily, because in the prior year, we performed $2.8 million worth of AI data intelligence services and advertising services related to a daily fantasy sports project during 2021, but did not repeat such a project in 2022.

We also experience of decline in demand for thermal imaging products that reduced our revenue from the U.S. by approximately $0.4 million in comparison to 2021.

And of course from China, revenue decreased $11.4 million was the number in 2022, compared $12.12 million in 2021, and of course as COVID restrictions that we've discussed, that were implemented and continued in many cities across China, well under the fourth quarter of 2022 was the main cause.

Those measures prevented our teams from being able to get out to many of the projects size and those implementations that were not able to be completed in the current year, we expect we'll start to pick up in the second quarter of 2023.

Our operating loss of $21.3 million during 2022 reflected an increase of $7.4 million from an operating loss of $13.9 million during ‘21.

Several large drivers caused that increase in operating loss, including the fact that the prior year 2021 included a $1.5 million recovery of marketing cost from our China business partner, while we had no similar activity in 2022.

Also an increase of $2.6 billion in our provision for bad debt related to the COVID restrictions that affected us and an increase of approximately $1.5 million in expenses related to our focused effort on business development, which has resulted in the expected business Shing has just described earlier.

Net loss totaled $55.5 million or $5.22 per diluted share during 2022, compared to net income of $27.5 million or $2.70 per diluted share during fiscal ‘21. The prior fiscal year included a $43.6 million non-operating gain on the revaluation of the company's investment in the common stock of Sharecare.

The value of that investment since declined significantly and that was primarily a result of macroeconomic and stock market conditions such that when we disposed of the investment through sales and in partial settlement of our debt, a $26.4 million loss on investment resulted.

Our interest expense increased to approximately $6 million during 2022 from an amount of $2.3 million in 2021, and that was primarily due to an increase in our debt principal outstanding, as well as debt discount on the new debt.

Cash at December 31, 2022 totaled approximately $500,000, compared to a cash balance of $14.2 million at December 20, ’21 -- December 31, 2021. Net cash used in operating activities during 2022 was $16.6 million.

As previously disclosed, on October 6, 2022, we obtained an equity line of credit pursuant to which, after certain conditions are met, we can sell our common stock to Ionic Ventures LLC in exchange for as much as $50 million.

And finally, a reminder that we affected a one for 10 reverse stock split on December 21, 2022 and our disclosures in our 10-K will retroactively reflect that reverse stock split. And with that, I will turn the call back over to Fay Tian..

Thank you, Todd. We can open the floor now for the Q&A. Alicia, could you please tell the instructions for the Q&A for our participants? Thank you..

Of course. No problem. We will now be conducting a question-answer-session. [Operator Instructions] Thank you. Our first question is from Steve Wagner with Integrity Wealth. Please proceed with your question..

Hi everybody. Hi Fay. Hi, Shing. Hi [Todd] (ph). Thank you for all the detailed information, Shing on all of the business initiatives. I've got a few questions, I think some for you and probably some for Todd.

The first one, I mean, it's intriguing that you talk about that you've got a ChatGPT product, I'd love to hear more about that? And just in connection with that, can you talk about how generative AI is different from the computer vision AI that you guys have been talking about?.

Hey, Steve. Sure. On the generative AI, when we say we've launched a, kind of, a ChatGPT rival or something like that, we've been doing AI for a long time, and I think our first major product was building very large language models. This was dating back to 2017, 2018. So we've been doing this for a while.

You know, the difficulty though back then was no one was paying for it. So it was very hard for us to continue to pursue that business if no one was ready to pay for it. And -- so we're certainly excited certainly with open AI success that potentially from a revenue standpoint, it opens it up for a lot of people.

And obviously for them to get to this point, they have incurred a lot of losses to get there. So we wouldn't have been well positioned to handle it. So instead of focusing on that, just say, over the last five years, what people were paying for, what businesses were paying for was for computer vision.

And really that's what we specialize in is really putting the brains behind the camera and interpreting what's happening there.

But with the ChatGPT service, we're now able to upsell the businesses that we work with, right? So say, for example, as I mentioned in the speech with whether it's a construction project that has to do with a building, whether it has to do with a cement factory or power plan, not only are we handling the front and back office, you know, in terms of their operations using our AI, but now we're able to use our generative to help them with design services, and we're seeing a lot of demand for that right now.

[Multiple Speakers] Please. And then go ahead.

Was there anything else you wanted to add to that?.

No, I think that addresses it or yes let me know..

Okay..

Yes. And then I would like to give a little more information on some of these initiatives, for example and by the way, it sounds like you guys are just busier than heck with all sorts of different verticals and we obviously as shareholders out there are very relieved to hear that. I could hear confidence in your voice and that means a lot to us.

I do want to though dive in first China, I was intrigued by the one comment there that you've got these 11 -- you did 11 additional installations by the end of 2022 on the smart construction solution there? I think you're getting $100,000 in revenue for each one? Can you unpack that a little bit? Is that lump sum? Is that projected revenue over a period of time? Is it subscription based help us with that?.

Well, construction projects in general, after two years, the project's been built, right? So it's during the life of the project..

Okay..

Right now, it's during the life of the project just say that as long as they use -- as long as we get deployed in the system, it generates about a $100,000 in revenue. Now the upside to this is couple of things.

One, is as our customers are more comfortable in using AI and helping their construction business, that number will go up obviously as they subscribe to more services that we provide, that's 1. And second of all is that they'll give us more projects to implement our AI. So I think those are the two upside factors for here.

We work with the world's largest construction company, they work on 7,000 projects annually. So there's massive upside for us. But like any large company with a great reputation, they move slowly and you need to prove what you say -- what you do is -- what you say is what you do and we're doing that now.

And certainly now that construction is resuming, we expect to share that number grow..

Excellent. And can you give us a little bit of like understanding of what the upfront costs are for the company in that? Is this all -- it's obviously there's some hardware, there's software involved.

How does that work?.

You know, the -- it's used in -- a lot of these construction companies already have cameras..

Okay..

And we're just basically installing our AI boxes to oversee the construction side or to help manage their workforce. So there's not really that much upfront cost anymore. In the beginning, both sides were trying to understand how to use AI, right? So now it's been several years and I think both sides are getting better.

They're getting more comfortable using it. We're understanding it how to implement, because each construction site is different. You know, it's exciting. And I -- one point, I think on this construction is because we've had this experience working with them, it's now opened up a lot of other opportunities.

One of which I should mention is in the Middle East.

Potentially, you've been reading probably in the papers of one of the biggest smart cities in the world being created, right? And they currently have I think 40,000 construction workers and that's growing up to 500,000 construction workers as they finish the different projects over the next five years.

And that's a massive opportunity for us, because nobody in the world really has been able to manage these large scale projects. We haven't either, but we have a lot of experience in dealing with the world's largest construction company, who built these large factories and all that.

So we're very optimistic about how we will enter the Middle East and we expect more things to come over the next three to six months regarding that..

That sounds good. So very intrigued by your comment -- your commentary on being profitable by the end of 2023. I can only imagine what that would do to the share price. So that aside I mean, how is that going to be possible? I mean, you guys obviously there's some non-cash charges in here and so I get all that.

I mean, the losses in as big as what the headline numbers are going to show, but still -- yes, a pretty significant loss. And while you'll still have a loss for 2023 obviously, you'll be profitable by the end of 2023.

I mean [Multiple Speakers] yes define profitability for us?.

Okay. So I would just break that down to you know -- I'd break down your questions with two answers. Number one, you have to compare apples to apples.

If you're to compare against other AI companies, like real AI companies out there, whether they're public or private, they're losing 100s and 100s of millions of dollars generating roughly the same amount of revenue, if not lower than we are.

And yet, they trade at a significant premium to us in terms of valuation, right? So, you know, so that -- so, you know, no one is saying, hey, we're creating magic and if there is another company out there that's doing it properly, we'd love to learn which company that is and we'd love to learn from them. But there just isn't, that's one.

And then number two from a revenue standpoint, the example that we can just use from -- is the one I just used in our speech with these -- with the school buses. This is a massive opportunity, and if you just break it down using over 50,000 buses to install, this is then coming to us to install three cameras per bus at $50 a month.

So 150 times 12, right, times 50,000 just to make math easy. And you -- that's a very large number, right? So these are just -- and that's on a recurring basis. Now say, for example, we don't win the entire fleet or they're slower even at a half of that is still very significant.

The bottom line is, as I've said, previously, there are not a lot of groups out there that provide the breadth and depth of our platform. You know, they might have one solution where it's saying, oh, let me just count how many people are coming up and down, you know, through the bus.

But they don't handle all the other solutions that any customer wants. No customer wants to handle a lot of different vendors. So we're seeing that as a great opportunity for us. And it's not just with school buses, now you're even talking with EV buses, which are going under the same type of situation.

But in that particular case, it's not just the bus itself, it's the bus stations, it’s the charging stations, these are all components where, potentially, we can upsell our AI tune, and I think we're having very deep conversations with, kind of, the name players in that market..

All right. Fair enough. I appreciate that. So let's talk a little bit about the awareness of the company. Obviously, the majority of investors today or individual investors, day traders, short sellers, some semi, you know, long-term people, men and women. What can you guys do or what are you doing to regain some kind of coverage.

I know we had Roth before, but then they went in a different direction. And then some potential stronger hands, I know a lot of institutions won't look at a company with a market valuation where we're at right now. But there are hedge funds out there that will and there are some other special situation type funds it will.

I'm just curious what you guys have in store there?.

I think it comes down to two things. One is, you know, very soon, ourselves and our customers will be able to announce like we'll be able to announce, who we're working with and the customers will be comfortable with us disclosing who they are, right? So I think that brings good credibility to what we're doing.

Having said that, I don't think we can be -- you don't get into such details and such specifics unless we have a real customer at hand, so I feel comfortable on that front. The second part is a -- the exploration of very deep strategic partners.

What I mean by that is, you know, it is very exciting to talk about all the different businesses and verticals that we're potentially getting into.

However, what gets lost is the real core and as I said in the speech, is the secret sauce of our business and that's the core technology value and that's the ability to train our algorithms 3 times as fast as our competitors and not needing a vast quantity of datasets to be able to train the algorithms, okay? So a true technology partner, people that really do understand the technology will be attracted to that.

And we are in discussions with that. So, you know, won't disclose, you know, kind of timetable, but just the fact that we are in discussions regarding that..

Okay, all right. Sounds good. Maybe offline we can get together and have a more in-depth conversation. But thank you guys so much for your time. It sounds like a lot of stuff is happening and we'll look forward with interest. Have a great afternoon..

Thanks, Steve..

Got it. Bye..

There are no further questions at this time. I would like to turn the floor back over to Fay Tian for closing comments..

Thank you, Alicia. And thank you everyone for participating in Remark Holdings fiscal 2022 financial results conference call. A replay will be available in approximately four hours through the same link issued in our April fourth press release. Have a good evening. Thank you..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..